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What other factors should Bill Hudson consider in deciding whether or not to purchase the Concrete Conveyor System?

Binet ILL HUDSON owns Hudson Ready-Mix, Inc., which operates a fleet of ninety ready-mix concrete trucks in the Denver metropolitan area. Owner. ship of the company was transferred to Bill by his father upon his retirement last year. Prior to his father's retirement, Bill worked for his father to finance an MBA program which he completed two years ago. Joe Taylor, representative of a local distributor of ready-mix trucks and parts, recently told Bill about a new product being offered by an equipment manufact- urer. This product, called a Concrete Conveyor System, is mounted on the back of a ready-mix concrete truck. The cost of $7,500 includes the power swing, instal- lation costs, and freight charges. Because the unit has an estimated economic life of ten years, a 10 percent investment tax credit is available to purchasers of the unit. Joe Taylor told Bill that the unit offers a number of advantages that would be of interest to him. The simple-to-operate unit provides the ready-mix truck opera- tor with added pouring versatility because a telescoping feature eliminates the need to move the ready-mix truck to place a load and it can place concrete at dif- ferent elevations. These advantages lead to significant labor and time savings on such specific jobs as pouring sidewalks, second floor walls and mezzanines, resi- dential garages, and commercial building steps. In addition, Joe told Bill that other ready-mix companies which have used the unit claim that they have been able to charge and receive an additional three dollars per cubic yard of concrete delivered via the unit. Bill Hudson was concerned about the high initial price and the extent to which the unit would be used. Accordingly, he contacted several of the ready-mix truck companies which had experience with the unit. These discussions indicated that the unit has had relatively low utilization rates ranging from 15 to 25 percent. The ready-mix truck companies have had to pay the truck driver an average addi- tional $500 per year regardless of the utilization rates because the local union has interpreted the unit as a type of mechanical equipment. Maintenance costs on the unit have varied with the utilization rates. These costs were estimated as $400, $500, and $600 for utilization rates of 15, 20, and 25 percent. If Bill Hudson purchases the unit, he will use straight-line depreciation with no salvage value. Average yearly production per ready-mix truck is 4,000 cubic yards with a range of 3,000 to 5,000 cubic yards. Each cubic yard is sold for fifteen dollars. A truck averages 1,000 trips per year. Appropriate corporate tax rate is 50 percent. The cost of capital for Hudson Ready-Mix, Inc. is 10 percent

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